Govt to outline next steps for increasing schemes’ illiquid investments ‘in the coming weeks’

The government will publish its proposed next steps for encouraging pension schemes to invest in more illiquid assets “in the coming weeks”, Pensions Minister, Guy Opperman, has said.

In response to a parliamentary question on the defined contribution (DC) pension charge cap, Opperman stated that the cap continues to be successful in achieving its objective of protecting members from poor value for money charges.

However, he said he was “determined” to make it easier for auto-enrolment pension schemes to invest in illiquid assets, such as infrastructure, green energy projects and venture capital investments.

"The Pension Charges Survey 2020 showed that two-thirds of DC schemes had zero direct investments in illiquid assets," he continued.

"The survey also highlighted that when it came to diversifying the investment portfolio the performance fees that often form part of many of the opportunities within illiquid asset classes were seen as one of the barriers."

The government launched a consultation on Enabling investment in productive finance in November 2021 to assess whether the removal of well-designed performance fees from the regulatory charge cap would improve member outcomes in the long term by making it easier to pay such fees when investing in illiquid assets.

“A fundamental part of this is also ensuring trustees can exercise their fiduciary duty and protect members from high and unfair charges,” Opperman stated.

“There is no compulsion to pay performance fees but if trustees believe that there is an opportunity to improve member outcomes, we do not want to hold them back from seizing this.”

Opperman revealed that it received 54 responses to the consultation, which closed on 18 January, and that the government is aiming to publish a summary of the feedback in the coming weeks.

Alongside this, the government will publish its proposed next steps as part of its wider set of proposals and reforms that it plans to bring forward to help pension scheme trustees access as wide a range of assets as possible.

In its response to the consultation in January, some industry figures warned against the removal of performance fees from the charge cap, with it being described as an “imperfect fix to a problem requiring a more radical solution”.

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